Employee-inventor compensation

Earlier this year, the Court of Appeal (in Shanks v Unilever PLC and other) provided some clarification as to when an employee, who makes an invention at work, may be entitled to compensation. Few such cases have come before the courts, and so this decision provides us with a greater understanding of the issues which must be taken into consideration.

Employee inventions

UK patent law defines two situations in which an employer is entitled to an invention made by an employee. In particular, an employer automatically acquires an invention made by an employee if the invention was made:

– in the course of the employee’s normal duties (or in the course of duties specifically assigned to him), in the circumstances in which an invention might reasonably be expected to result from the carrying out of those duties; or

– in the course of the employee’s duties, where the employee has a special obligation to further the interests of his employer’s undertaking.

In general there is no requirement for the employer to provide any form of payment for the invention other than the employee’s normal salary.

Right to compensation

However, in some circumstances, an employee may become legally entitled to compensation for an invention which is particularly successful. Compensation can only be ordered by a court if a patent for the invention has been granted to the employer, the invention or the patent (or the combination of both) is of outstanding benefit to the employer, and the court considers it just to compensate the employee. The definition of outstanding benefit is key in such cases, and should be determined having regard to (among other things) the size and nature of the employer’s undertaking.

Compensation is not available if a relevant collective agreement relating to employee compensation has been negotiated, for example by a trade union, but it cannot be nullified by any other contractual arrangements. Under an older version of the law, only the benefit of the patent itself was taken into account, but now the law considers the benefit of both the invention and the patent.

Currently, any award of compensation to employee-inventors is at the discretion of the Court and is therefore not guaranteed. Case law suggests that, where the nature of an invention is such that it was the expected and reasonable result of the inventor’s duties and responsibilities for which he was paid, the benefits conferred on the employer by the patent must in fact be exceptional in order for compensation of the employee to be considered ‘just’.

Level of compensation

If it is determined that the employee is entitled to compensation, the level of that compensation should be calculated taking into account a number of factors, including:

– the nature of the employee’s duties and their remuneration or other benefits derived from their employment;

– the effort and skill contributed by the employee in making the invention;

– the contributions of any other employees in making the invention; and

– the resources and contributions made by the employer in making, developing and working the invention.

The law says that the employee should be awarded a fair share of the benefit to the employer. It therefore seems likely that the level of compensation available would depend on the scale of the financial benefit enjoyed by the employer.

Landmark decision

In the 39 years that employee-inventor compensation has been available in the UK, only one case has been decided in an employee’s favour. In particular, in the landmark decision of Kelly and Chiu v GE Healthcare, Dr Kelly was awarded £1 million and Dr Chiu was awarded £500,000 on the basis of £1.3 billion in revenue for GE Healthcare. Drs Kelly and Chiu had invented a radioactive heart imaging agent which was subsequently protected by two European patents owned by GE Healthcare. In this case the claimants were successful because of the exceptional scale of the profits made by GE Healthcare while it was able to exclude competitors by virtue of the two patents.

Shanks v Unilever

The assessment of the benefit derived by an employer from an employee’s invention was the issue at the heart of the most recent case decided by the Court of Appeal (which was decided under the older law in which the benefit of only the patent, and not the invention in general, was taken into account). Professor Shanks had made an invention relating to capillary fill devices used in blood testing while he was an employee of Unilever UK Central Resources Ltd. Unilever subsequently patented the invention in a number of territories and sold the patents to a third party, accruing an estimated total gross benefit of £24.5 million. The Court of Appeal confirmed earlier decisions of a Hearing Officer and the High Court that the benefit to Unilever was not outstanding and that therefore Professor Shanks was not entitled to compensation. £24.5 million was not considered sufficient to qualify as an outstanding benefit when compared to the annual profits of a large entity such as Unilever.

The decision in this case appears to indicate that an employee of a smaller (or less profitable) entity may in fact be more likely to be entitled to compensation than an employee of a larger entity, because the threshold for reaching an ‘outstanding benefit’ would be lower for the smaller employer. This apparent benefit conferred on larger entities was described as being ‘too big to pay’ by Professor Shanks’ legal team. While this may seem unfair, this decision does appear to be in line with the wording of the law, which specifically mentions the size and nature of the employer’s undertaking as factors which should be taken into account when evaluating how outstanding the benefit is.

Claimants should therefore consider carefully whether the benefit to their employer has been truly outstanding when deciding whether it is worthwhile taking legal action to seek compensation.